Dead economists can’t analyze the present

Of course they can’t. Yet, many pick up some dead economist and speculate what he or she would have thought about some current economic incident or policy. For example, even though a whole industry is still devoted to try figuring out what Keynes actually meant when he wrote The General Theory three quarters of a century ago, many discuss Keynes’ “advice” for policy in the present times of economic slump. While interesting from the perspective of the History of Economic Thought, it sometimes seem as a lot of wasted intellectual resources. Never mind about what Keynes would or would not have thought. Read him and learn, but don’t bestow him with conclusions he could never draw.

Likewise, never mind what Milton Friedman would have thought about the massive quantitative easing policies that many central banks have adopted recently. Nevertheless, Paul Krugman has just argued that Friedman would have favored it, based on Brad DeLong’s “proof”, which again is based on a quote from a 2000 interview where Friedman advocates that Japan should adopt a more expansive monetary policy. Well, Friedman died in 2006, so we cannot really know what he would have said about today’s issues. And honestly, does it matter that much?

Probably only to those who like to be associated with some camp, or particular school of thought. They can then either seek comfort in such speculations, or use them to ridicule followers of another camp. I, however, have never favored the insistence of such associations: It can only lead to potential inconsistencies, which then lead to wasted time on trying to explain why you on this and that point did not say or mean exactly what the founder(s) of this particular school said, or is believed to have said today. It just gets to speculative to me. And as an academic, I don’t care much for speculations, but care much more for rigorous analyses.

Speaking of potential inconsistencies: When Krugman makes his point, he writes the following about Friedman:

“His criticism of the Fed during the Depression was that it didn’t do enough to prevent a fall in M2 — that is, that it didn’t print enough money.”

I.e., Friedman thought a monetary contraction could be, and was shown to be, harmful. This made him suggest that the Fed should aim at stabilizing a broad money aggregate. In 2007, Krugman had the following to say about Friedman:

“Japan in the Nineties offered a fresh opportunity to test the views of Friedman and Keynes regarding the effectiveness of monetary policy in depression conditions. And the results clearly supported Keynes’s pessimism rather than Friedman’s optimism.”

So, four years ago it seemed as if Krugman did not think Friedman’s views on monetary expansion in a depression (characterized by zero nominal interest rates like the present) had much merit. A conclusion based on what actually happened in Japan. But today he argues that that Friedman would favor an expansion based on what Friedman said in 2000 about Japan. Does it make sense? I mean, would Friedman not have learned from the Japanese experience? Would he believe that the current crisis was caused by too restrictive monetary policy (which seems to be a prerequisite for making the Great Depression analogy valid)? I am not sure Krugman would seriously argue that Friedman would think so today. Does it matter much? Why not just explain your own thoughts? (I am aware that Krugman is not trying to make an economic point per se, but a more political one; that, however, does not make speculation about late people’s thoughts anymore relevant.)

Until the time machine is invented, let dead economists rest in peace, and let us learn from their writings. We shouldn’t use them as a starting points for guessing games.